Editor's note: This video is part of our 2020 Tax and IRA Guide.
Christine Benz: Hi, I'm Christine Benz from Morningstar. It's IRA season, and some investors might be looking for just the right holding to use for their portfolios. Joining me to provide some mutual fund ideas is Russ Kinnel. He's Morningstar's director of manager research. Russ, thank you so much for being here.
Russ Kinnel: I'm happy to be here.
Benz: Russ, let's talk about some funds that you like for investors who want to populate their IRAs with something. Your first pick is pretty tried and true. This is Dodge & Cox Balanced. What's the idea, and what's the virtue maybe of using just a single-stop fund like this to populate your IRA?
Kinnel: Yeah, I think it makes it simple for you. It's a nice core strategy. I think it's really the old-fashioned 60/40 split. They sometimes vary a little, but if you think about all the strategies over the years that have come at 60/40 from risk parity to all these alternatives to all of these tactical allocation--and at the end of the day, none of them have as good results as plain-old 60/40. Dodge & Cox is great at it because they're very good at stocks and bonds. They have a value tilt on the equities. Their fixed income has a corporate/mortgage focus with some Treasuries, too. So investment-grade but a bit of corporates, and the combination is just a great one. You look at the results over the long haul have been very good. It's a firm where the investors are very long-term-focused. They tend to stay at the firm through their whole careers, and it's a team approach. So just a lot of stability and just a nice dependable fund. You can put it in your IRA and just contribute every year and don't worry about it.
Benz: And one thing we know from looking at the data on IRA contributions is sometimes people get their money into the account, but it sits there in cash. Having this well-diversified fund is maybe a way to just make sure that your money gets invested. I can see investors thinking--like maybe right now thinking--it might not be a great time to buy equities. It seems like a fund like this kind of solves for that.
Kinnel: Yeah, it helps you with decision fatigue. Just keep putting money into it. It's not going to have many huge years. It's not going to have many terrible years. I mean, a year like '08 is going to be tough for a fund like this. But still it'll have a lot less downside than a pure equity fund. So, just keep plugging away.
Benz: Another fund that you like is a high-yielding, dividend-focused fund, Vanguard High Dividend Yield Index. This one is available as an ETF, too. Correct?
Kinnel: That's right.
Benz: So let's talk about the thesis here. I'm guessing low cost is toward the top of the list. What else is good about this fund?
Kinnel: That's right. Eight basis points is a nice way to start off. It's tilted to the higher-dividend-yielding side of dividend-paying stocks. So you get a fairly high dividend yield, which can often be a nice ballast in downtime because that income will keep coming even in a downmarket. And I think also in an IRA you don't have to worry about the tax aspect because high dividend yield obviously is going to be tax-inefficient somewhat because you have to pay taxes on that income. But obviously in an IRA, you don't have to worry about that. So this is just a nice simple way to have some income, and I wanted to think of something a little different than a total market fund. This is a nice value dividend-tilted fund.
Benz: But total market would be just fine within the IRA.
Kinnel: Total market is often a good idea, too.
Benz: So Loomis Sayles Bond, it seems like this is another one that nicely harnesses that IRA wrapper where you have that tax efficiency working for you. Let's talk about this one.
Kinnel: Right. Now this one is less of a core fund than the first two I mentioned because it's a multisector bond fund. So it's got high yield, it's got some foreign markets, it's got some foreign currency. So, definitely for a bond fund, it's a very high risk fund. But Dan Fuss and the rest of the team at Loomis are very good at taking those risks. I think it's helpful to think of this a little more like a stock fund in terms of your holding period. So it's also good for an IRA in that way because it does have some risks, so you really need to think about owning this fund at least five years, ideally more than 10. But again it's got a nice income as well, but I think good return potential and a little different than your equity, so it's got some nice diversification potential as well.
Benz: Another fund that you like is T. Rowe Price Global Growth. This is also kind of a higher-risk fund. It leans toward the growth side of the style box. Let's talk about why you and the team like this one.
Kinnel: It's not often you can say, "Here's a T. Rowe stock fund that's somewhat under the radar," but this is a fund with a great 11-year record that's under $1 billion. Scott Berg runs it. In some ways, the typical T. Rowe trademark--kind of growth at a reasonable price, more than a hundred holdings, no particular stock above 3%--but 25% emerging-markets weighting. So, I actually consider this a fairly high-risk world-stock fund. But again, I think it's a nice world stock. It's a nice thing for the IRA because it is, again, a very diversified core holding. Again, this is one where you could make it your only holding or one of a few holdings. And again at less than a billion AUM, it's got some room to run as well.
Benz: Russ, always great to get your insights. Thank you so much for being here.
Kinnel: You're welcome.
Benz: Thanks for watching. I'm Christine Benz from morningstar.com.